Generics Play

Generic drugs, once dismissed as inferior “copy-cats” by the mainstream pharma companies, are now an important part of the industry’s future.  For the past five years, the share of $400 billion world drug sales attributed to generic drugs has increased at a 10% annual rate and is predicted to increase to a 28% share by 2015 (IMS report cited in a Reuters article).  While for most of the world generics are the only drugs most people know and can afford, in the US their value has been less appreciated although now generic drugs are becoming an important component of health care cost-containment (see Health Affairs article on generics in Medicaid).  As prices are scrutinized, patents expire, and new drug approvals slow, the big pharma multinational companies, both those that have generics franchises like Novartis/Sandoz, Roche, and Pfizer and relatively newbies like Merck, have been increasing their “branded” generics business outside the US to help stay profitable.  Branded generics are un- or off-patent drugs made, labeled, and sold by a ”trusted” big pharma and aimed at the self-pay market (NY Times article).

To beef up their generics offerings to sell in the emerging markets like China, the big pharma companies have turned to the home of the world-wide generic drug manufacturing, India, and have cut various deals, e.g.:

  • Pfizer licensed Biocon’s pipeline of diabetes drugs (see my post “Deal of the Year 2011,” 3/24/11, and  Chem Eng News article);
  • Merck and Sun started a joint venture to co-develop variations of generics by formulation or combination (Merck press release, Merck press release);
  • Bayer and Calida set up a marketing joint venture for complementary products but in India only (Fierce Pharma article);
  • Pfizer licensed 60 products for 70 countries from Aurobindo Pharma (Pfizer press release); and
  • GSK licensed marketing rights for all of Dr. Reddy’s Laboratories products for all countries except India (Seeking Alpha article).

But is big pharma committed to selling generics to all purchasers including the public health agencies whose budgets dictate the smallest of profit margins?  Is the big pharma plan as summarized by Jeff Kindler, chairman and CEO of Pfizer:  “Today’s announcement [of the Aurobindo agreement] demonstrates Pfizer’s commitment to improving the global public health landscape by making needed quality medicines – in a range of disease areas – accessible to underserved populations worldwide … Pfizer is in an ideal position to supply high-quality medicines at affordable prices to people around the world (Pfizer press release).”  Or is it only to sell to patients who can afford to pay, as suggested by Andrew Witty, Chief Executive Officer of GlaxoSmithKline:  “Today’s announcement [of an agreement with Aspen of South Africa] demonstrates our intention to catalyse GSK’s sales growth in emerging markets where growth in both population and economic prosperity is leading to increased demand for branded pharmaceuticals” (GSK press release)?

The nice thing about markets, at least when they work, is that buyers get the best deals when there is competition, and one Indian generics company may be positioning itself to compete with big pharma in the emerging markets and for all customers.  Cipla (Cipla) is India’s largest pharma company with $1 billion-plus in annual revenue (65% outside India) that is best known for its line of anti-viral drugs that brought the annual cost of HIV/AIDS therapy in Africa down from more than $10000 to about $100.  Although it has been talking with big pharma companies about licensing its products, Cipla has done no deals, and the company chairman, YK Hamied, has signaled any deal would be limited to a few products (Reuters article).  Moreover, Cipla plans to sell to all purchasers, including those where the profit margin will be small.  Last year, at the August annual meeting, Mr. Hamied said the company is extending its lowest-cost business model to biological drugs for cancer:  “We believe this activity is also humanitarian and like our crusade on the HIV/AIDS front, we will attempt to make a similar contribution in the sophisticated cancer market, reaching one and all cancer patients with valuable drugs at affordable prices” (my post of 10/14/11 and Business Standard article).  In this year’s annual meeting, Mr. Hamied emphasized reaching emerging markets through partnerships with distributors with strong positions in those markets already (Fierce Pharma article).  These distributors are willing to sell products to the public health sector, where prices are lower but volume greater than the self-pay market.  For example, Cipla’s South Africa partner, Cipla Medpro, recently announced plans to expand its sales in Africa and to include oncology products at prices attractive to government purchasers (Business Day article).  It has also been reported that Cipla has a similar plan increase its domestic sales in the rural parts of the country, where most health care is government-provided (Reuters article).

A multinational pharma company that is growing at 14% per year with plans to sustain that growth through selling low-cost drugs in the least attractive markets?  Sounds like a winning strategy.

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